🔗 Share this article

What is your perceive our system of government functions? Maybe something like this. Citizens choose MPs. They debate and pass bills. Should a majority is achieved, the bills pass into law. The law are enforced by the courts. End of story. However, that was how it used to work. Those days are over.

The Advent of Secret Courts

In the modern era, overseas companies, and the wealthy individuals who own them, have the power to sue elected administrations for the laws they pass, at offshore tribunals composed of commercial attorneys. The cases are held away from public scrutiny. In contrast to domestic courts, these bodies grant no right of appeal or legal review. You or I cannot take a case to them, nor can our government, or even enterprises headquartered in this country. They are open solely for corporations based overseas.

Should an arbitration panel determines that a law or policy could harm the corporation’s anticipated profits, it has the power to grant damages of hundreds of millions of pounds, even billions.

These sums constitute not tangible damages but compensation the arbitrators decide the company would perhaps have made. The government could be forced to drop the legislation. It will be deterred from passing future laws of a similar nature, worried about facing litigation.

A System Spiralling Out of Control

Record numbers of disputes are being brought, as firms learn from each other, and hedge funds fund legal actions for a share of a portion of the settlements. The result? Democratic sovereignty and popular rule are turning into prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede a country's own laws and the decisions enacted by legislatures is that this provision has been written – absent public approval, and frequently under a climate of profound opacity – inside bilateral investment treaties.

A Real-World Example: The UK Coal Mine

A year ago, environmental campaigners won a great victory at the senior court. The presiding officer ruled that schemes to open the first major coal mine in the UK for a generation, in Cumbria, had been wrongly permitted by the Conservative government, which had endorsed the extraordinary assertion that the mine would have had no consequence on our carbon budgets. The Labour government subsequently revoked the licence the Tories had approved. Today, this legal outcome is under threat by an offshore tribunal accountable to no one but the companies bringing the case.

In August, a company whose beneficial owners are based in the Cayman Islands initiated proceedings against the UK government. The previous week a tribunal in the United States was convened to adjudicate on it.

The company is seeking compensation from the UK for the revenue it would have generated if the mine had received permission to proceed. We have little idea how much this might be. Who is serving as its counsel in opposition to the UK administration? A sitting MP, and previous senior legal advisor in the previous government, the self-proclaimed patriot Geoffrey Cox. The government makes a decision, the domestic court validates it, then a foreign company challenges it through an undemocratic private court, and a member of our parliament works for its behalf.

The Russian Challenge

Concurrently that the panel on the coalmine case was appointed, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, an oligarch. The public knows scarce of the case at present, but it is highly possible that he may employ the tribunal to fight the restrictions the UK imposed on him subsequent to the invasion of Ukraine. He has filed a claim against another European state on these grounds, seeking sixteen billion dollars: half that state's annual revenue. Part of the counsel on his side? Cherie Blair, married to the previous PM.

Trade specialists contend that the EU’s hesitation in utilising seized state funds as collateral for its financial support package arises from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This remarkable, undemocratic power over sovereign states may be obstructing the funds Ukraine critically depends on.

Empty Promises and Escalating Costs

The public was told that these events wouldn’t happen. In 2014, a former prime minister, promoting the most significant and hazardous of all these agreements, declared: “The UK has signed trade deal after trade deal and we have never seen a case in the past.” A consultant on this topic labelled activists of “scaremongering … the fact is, ISDS barely touches the UK much”. The overall message appeared to be that only poorer nations had to worry about ISDS claims. Cautionary notes that “as corporations begin to understand the influence they’ve been granted, they will shift their focus from the vulnerable countries to the developed economies” were met with widespread derision.

That warning has come to pass. In the current period, energy and mining firms have filed a record number of suits against nations across the economic spectrum, opposing – similar to the Cumbrian coalmine – government attempts to stop environmental catastrophe. Firms have to date won vast sums via ISDS, of which oil majors have been awarded $84bn. That is equivalent to the combined GDP